Recently, Nikolaos Panigirtzoglou, a cross-asset market strategist at JPMorgan Chase, expressed his views on changes in liquidity and M2 money supply in the United States. He noted that while the M2 money supply has rebounded in recent months after contracting in April, the rebound is likely to be temporary.
Liquidity rebounds temporarily, but contraction expectations remain unchanged
Nikolaos Panigirtzoglou said: "U.S. liquidity and M2 money supply have rebounded in recent months after contracting in April. This rebound challenges our previous forecast, but we still believe this is a reasonable forecast and a recent rebound may It's just temporary."
Two key factors in the recent rebound
He pointed out that there are two key factors in the recent rebound in US liquidity.
The first factor is the reduction in the U.S. Treasury Account Balance (TGA) to below $850 billion, which is the figure expected by the end of September.
The second factor is the reduction in the Fed's reverse repurchase agreements (Reverse Repo) to below $300 billion in August.
Liquidity may shrink again in the future
Nikolaos Panigirtzoglou further explained: “With these two key factors likely to have ended, the Fed’s continued quantitative tightening (QT) and the slow growth of US bank loans may cause US liquidity and M2 money supply to contract again, It may be similar to what happened in 2022.”
He also mentioned that this expected contraction represents a significant change from the past year. Especially from the end of April 2023 to the end of March 2024, during these 11 months, the U.S. money supply increased by US$1.3 trillion, mainly due to a US$1.8 trillion reduction in the Federal Reserve's reverse repurchase agreement.
This reduction resulted in a large amount of liquidity being injected into the market, because when the Fed would reduce its reverse repurchase operations, the amount of money in the market would increase, thereby increasing the money supply.
Analysis by Nikolaos Panigirtzoglou suggests that U.S. liquidity may be contracting again, which means U.S. financial markets may tighten even more. You can pay close attention to the policy direction of the Federal Reserve and changes in the overall market to make more informed investment decisions.
This article JPMorgan Chase: U.S. financial markets will face a liquidity crunch, and the recent rebound in money supply will be short-lived appeared first on Chain News ABMedia.
